Harvard’s Dirty Hands

Today is, at last, Harvard’s day in court, for a case that dates back to the early 1990s. Over the summer, the U.S. Department of Justice filed a motion against Harvard for $102 million, alleging conflicts of interest that violated the Harvard Institute for International Development’s (HIID) contract with the U.S. Agency for International Development (USAID) in Russia from 1992 to 1997. During that time, HIID was advising the restructuring of the Russian economy—and HIID’s officers were under strict orders, the U.S. says, not to personally invest in the companies that their work gave them influence over. Today, the federal court in Boston will either issue a summary judgement or send the case to trial.

HIID does not exist anymore—it was disbanded in 2000. Between 1992 and 1997, however, USAID provided Harvard with $40 million for HIID’s operations in Russia. Andrei Shleifer directed the institute in the early years of the contract and remains a tenured professor in the economics department here. Jonathan Hay, his deputy working in Russia, has since been dismissed by the University.

In 1994, the story goes, Shleifer invested $464,000 in Russian oil companies, securities and equities—an overlap with the area of the Russian economy that he was helping to develop, while Hay put $20,000 into a mutual fund that invested in Russian equities. Hay, it is claimed, also gave a $66,000 check to Shleifer for Russian investments. The woman Hay is now married to, his girlfriend at the time, was the primary owner of the Pallada Mutual Fund Management Company—the first fund registered to sell to the Russian public. Through HIID, Hay oversaw such registrations. None of these transactions, the US says, were disclosed to USAID

Jeffrey Sachs, who ran HIID from 1995 to 1999 and departed Harvard last spring for Columbia, filed a deposition condemning the transactions and stating that, had he been director of HIID in 1994, he never would have allowed such violations to occur. Indeed, the apparent conflicts of interest surrounding HIID seem most regrettable. The scandal surrounding HIID resulted in the dissolution of an institute and the firing of Hay. There may have also been damage done to the Russian economy—ironic, as Harvard was brought into Russia to help address issues of corruption.

Today these conflicts may result in the imposition of a hefty cost on Harvard— a full decade after the alleged transgressions. The possible legal award to the Department of Justice does not, however, address the issues that this case raises for all of us affiliated with the University. Harvard, through HIID, served the private interests of several of its officers—in direct conflict with their jobs, their obligations to the US government and the interests of the Russian country.

Recently, Harvard, with all of us who live, work and study here, has been tainted—not only by the conflicts of interest of Harvard employees in HIID, but also by the University’s involvement in Enron and, earlier, in the Harken Energy Company. And these cases may well be just the tip of the iceberg—visible only when the company connected to Harvard attracts public attention.

Before running aground of yet another corporate scandal, the University needs to be rapidly redirected away from the peril of corporate and personal interests and towards the interests of the Harvard community and the public—here or in Russia—that the school should be serving.